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Operator
Greetings and welcome to the ICU Medical, Inc. first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Mills with ICR. Thank you. You may begin.
John Mills
Good afternoon, everyone. Thank you for joining us to discuss ICU Medical's financial results for the first quarter of 2022. On the call today representing ICU Medical is Vivek Chain, Chief Executive Officer and Chairman, and Brian Bunnell, Chief Financial Officer. We wanted to let everyone know that we have a presentation accompanying today's prepared remarks. To view the presentation, please go to our investor page and click on events calendar, and it will be under the first quarter 2022 events. Before we start our prepared remarks, I want to touch upon any forward-looking statements made during the call, including beliefs and expectations about the company's future results. Please be aware they are based on the best available information to management and assumptions that are reasonable. Such statements are not intended to be a representation of future results and are subject to risk and uncertainties. Future results may differ materially from management's current expectations. We refer all of you to the company's SEC filings for more detailed information on the risk and uncertainties that have a direct bearing on operating results and financial position. Please note that during today's call, we will also be discussing non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into ICU medical's ongoing results of operations, particularly when comparing underlying results from period to period. We've also included a reconciliation of these non-GAAP measures in today's release and provided as much detail as possible on any addendums that are added back. With that, it is my pleasure to turn the call over to Vivek.
Brian Bunnell
Thanks, John. Good afternoon, everybody, and we hope you're well. It's been a hectic 70 or so days since the last call as our legacy ICU businesses have continued to progress well, and we've been consumed with trying to improve the performance of the businesses that came with Smith's Medical. The external volatility in the supply chain that we've been describing for the last year continued primarily around fuel, freight, and raw material availability, while hospital census for our customers was more balanced throughout the quarter than it has been in a long time. Underlying demand in Q1 was good in all geographies with the exception of Asia. Like everyone in our industry, we want to start first by thanking all of our customers and their frontline workers for trusting us to serve you during these times. And it's been great to meet so many of our international Smith's Medical colleagues live, as we've now been to just about every single country with the exception of those on total lockdown. While Q1 results were generally in line with our previous comments for legacy ICU medical, our results for Smith's Medical were slightly different than our expectations. So we wanted to use the time on the call today to comment on the year-over-year drivers of the three main legacy ICU businesses and reiterate our view of expected growth for the upcoming year. Give some sense of the current volatility and inflation in the market and how it may positively or negatively impact the level of legacy ICU profit growth. Explain the Smith's medical revenues we achieved in Q1 and how that compares to historical levels over a long period of time with some color on the variance. Provide a status update on the current challenges and opportunities with the Smith's businesses as we see them now with a few more weeks into our ownership and articulate our priorities and criteria for success in the near term. state again why there's a wide range of outcomes for the first few quarters, and lastly and briefly, bookend the scenarios we see post-deal and recap our views of value creation with just a few words on the medium and long-term. Q1 2022 is our first quarter of joint reporting, and given some of the challenges on the Smith's medical business, it is a bit of a longer story. I'll quickly summarize the whole company results and then discuss each portion of the business. We finished the quarter with $532 million in adjusted revenue, Adjusted EBITDA came in at $85 million, and adjusted EPS was $1.82. We have a little more cash on hand than originally modeled, with net debt just over $1.3 billion, and had a heavy quarter of investment into the business with inventory builds, et cetera. It was a less clean quarter, as we're spending at a very high rate to improve the service levels of Smith's Medical, and we had restructuring and integration costs step up as we closed the transaction. And Brian will walk through the full P&L of those items. The growth comparisons are more relevant when looking at the individual portions of the business. So let me start with Legacy ICU Medical, which is a more straightforward story. In Q1, Legacy ICU had $317 million in revenue, which was growth of 6% on a constant currency basis. We again had good year-over-year growth in our most differentiated businesses, and perhaps the most important point is that we did not see any pandemic-related ordering in and we believe some of the excesses that were in the channel have started to come out. This gives us a chance in certain areas, pending other supply chain challenges, to normalize our operations on a more predictable basis. When looking deeper at the results and comparing the year-over-year results versus the rolling sequential trends, a few observations are clear. First, as we always say, legacy ICU is most tilted to the U.S. market where we're dependent on admissions and electives, and we saw procedures improving and admissions consistent with Q4 while inventory was easing in the channel, which tells us that there are less COVID spikes and lower acuity patients, and maybe that's obvious given the public hospital company results. Second, with the exception of Asia, international markets are really back to normal. It's hard to show clearly with the strong dollar impact, but sequentially they're improving on a unit basis, which we were talking about last year in getting back to normal. We believe our global customers being back to some baseline and managing less COVID spikes has substantial benefit to our aggregate portfolio. We still don't know the real U.S. baseline with a high confidence interval, but it felt more normal in Q1. So let's go through the businesses quickly and then come back to discuss the current environment. Starting as usual with Infusion Consumables, which is our largest business. Infusion Consumables had revenues of $141 million, which was a 13% increase year over year on a constant currency basis and 11% on a reported basis. Both core IV therapy and oncology grew in the low teens, with obviously both looking a bit inflated as we had lower volumes in Q1 2021. We've talked on the previous calls about feeling positive in the U.S. market and our growth product setting us up well as the rest of the world opened up, which is what happened. We would offer the same general comments on the drivers. First, we're benefiting from the annualization of the new business we implemented last year. Second, we've gotten back to our core clinical marketing, building on the good press we talked about on the last call around the U.K.-based NICE guidelines for our ClearGuard product We now have been presenting some interesting analyses and data sets on infection reduction for our core consumables business and continue to expect additional evidence-based data on our broader portfolio. Lastly, we did see some relief in the pandemic ordering as COVID spikes waned and wholesalers and direct customers could ease up on hitting the order button more than normal. We've always said we'd rather talk about this now versus customer destocking later. For 2022, we continue to believe this segment is capable of mid-single-digit growth, which had incorporated some of the just-mentioned channel behavior. Moving to infusion systems, which are primarily our LVP pumps and associated dedicated sets, this segment did $87 million in adjusted revenue, which was an increase of 5% on a constant currency basis or 3% on a reported basis. We did have a good level of installs in Q1, which is what we talked about on the last call as installations were pushed out of Q4. It is likely that the same underlying trends as IV consumables applied here, with some softening on the U.S. ordering levels of dedicated pump sets, and us installing a larger amount of hardware, which will be new competitive pumps utilizing new sets in the future. It feels like the customer attention is back, with bandwidth have real discussions, and capital still does not feel like a constraint, even if customer P&L is likely quickly becoming one. It does seem some of the fatigue from COVID is abating. and the acceptance of inflation and future costs of nursing, et cetera, are being internalized. We still believe, relative to our size, there's solid competitive opportunity, and we're focused on commercial execution here and continue to see this segment as a mid-single-digit grower in 2022, and infusion systems will be the largest it has been under our watch. Finishing segment discussion with Infusion Solutions, we had $77 million in adjusted revenue, or a decrease of 4% on a year-over-year basis, both constant currency and reporting. This segment was different than the others due to more specific industry issues of general shortage. Ivy Solutions was flat sequentially, and again, we could have sold more if we had excess inventory on hand. On the last call, we talked about Q1 having exposure to the hit from Omicron for a few weeks in late December and January and the weird weather in Texas in February. We're past all that now, and production has improved versus the December-January timeframe. We continue to believe this business annualizes at plus or minus $80 million a quarter. Okay, so what does this all mean in the context of EBITDA and profits for legacy ICU before we turn our comments to Smith? On the last call, we sketched out the specific math on the impact of inflation and the rollover effect into 2022 and highlighted the impact of a strong dollar and said we could still deliver meaningful EBITDA improvement with a range of $265 million to $285 million for 2022 ICU standalone. While it's harder to measure this exactly as expenses between the business have become commingled, we continue to believe this is true with the only new information since the last call being the volatility in fuel and freight and the continuing saga of ensuring proper raw material availability. We had budgeted freight cautiously for Legacy ICU to start the year, but the recent events make it hard to predict what the actual cost will be. Everything else is the same as the last few calls, where we find ourselves asking the question of why some of these raw materials or transportation services aren't really so much more valuable over the long term than they were before the pandemic, particularly as the total utilization for healthcare end markets is still below historical levels. Obviously, some of these costs are indexed to CPI, but we believe in markets, and when capacity increases, pricing should rationalize. So for us, it's about trying to run a stable and predictable operation in a normal environment to get price improvements where we can, and to try to illustrate to customers the need to have some of these costs indexed, and to ultimately to just ride it out, serve customers with belief that supply and demand will balance over time. So now let me move to the Smith's businesses first talking about aggregate revenues and then how that fits broadly with the two buckets of issues we laid out in the last call, which we said could lead to a wide range of outcomes in the first few quarters. And that is what's happening now. And then I'll give some updates on progress on the issues, synergies, et cetera. Starting with revenues, the Smith's medical businesses contributed 215 million with vascular access being the largest at 79 million infusion systems at 66 million. And with vital care in between, it's $70 million. To try to make sense of this, the first question is, how does this compare to historical levels, not just year over year or sequential, as where the same people that have been saying these are sticky categories where there's inertia and things move slowly, et cetera, et cetera. Going back 10 years and taking out the COVID-related items, these businesses have typically been in the $280 to $300 million a quarter range. So let me try to explain the bridge from that range to Q1 in three buckets. The first item is really math and accounting, as we closed on January 6th, and the Smith systems closed the quarter a few days before the calendar end of the quarter, so we didn't capture about seven days or $25 million in revenue. The second item is about being a reliable supplier with a strong supply chain, and we shipped about $20 to $30 million less than we targeted in Q1, and back orders actually went up through the quarter. Third bucket is due to the quality-related interruptions described in the last call, which equals about $15 million across the portfolio. The answer to how do we find ourselves in this position and what are we doing to fix it dovetails with the two main categories of issues described in the last call. The first challenge stated was just around the poor execution of the basics on being a reliable supplier. It's akin to the Hospira situation where we used to say they forgot they were a manufacturing company and lived in some alternate universe of technology partnerships and distribution, etc., It's the similar situation here, but at a moment when the entire supply chain has been very weak. We find ourselves in this position because actions were not taken to solidify the Smith supply chain as the volatility grew in 2021. And we walked in to find inventory down, production down, and a weak fulfillment network. In plain English, the buffer stock got sold over the back half of last year. But we bought the business. We did the deal. And it's our problem to fix it. and it starts with a high level of intensity and understanding of the end-to-end business, and it fundamentally starts with being a reliable manufacturer. Our folks are now in charge of all these areas and bringing that focus. We have made significant progress since the last call on production output levels, particularly of the most critical and highest margin items. This has meant staffing up the factories, which we've made real progress on, and securing the base of supply. What we need to do now, and there's a lag time, is to move that increased production through the global fulfillment network, which has been the primary focus for a few weeks. To be extremely clear, a few things happened here that impacted the Q1 results. From a revenue perspective, we did not ship as much as we wanted, and that was a hit to revenues. From an expense perspective, we've been spending carte blanche to improve customer service levels with an ICU mindset, and the factories were running at lower absorption levels in Q4 and early Q1, and the combination is a huge hit to gross margin in the short term. There's plenty of demand. None of this has to do with product features. It is self-inflicted harm on the basics of blocking and tackling, and absolutely none of it requires any significant capital or technological innovation. It's just pure focus on good operations. The last item of $15 million in revenues is related to what we call the bucket of quality-related interruptions. When you change people and strategies so frequently, it's hard to run a consistent quality process. It is public information that Smith received a warning letter in 2021, And with all the twists and turns of what was happening with the company, they were essentially frozen. Just like being a good manufacturer, running a compliant quality operation and ensuring safety is what gives us the right to participate in these markets. The existence of a warning letter, while undesirable, is the regulatory agency trying to move the ball forward. We entered a similar situation when we acquired Hospira, and our team worked under an even more stringent framework at the previous infusion company many of us came from. It's the same story here. Know what business you're in. Be compliant with regulators. Invest in your quality management systems, which we have, and have the people that can make decisions and deliver on the commitments made to regulatory agencies. And just like the first challenge, none of this requires groundbreaking technological innovation. It's just the basics. Since the last call, we've made significant progress on getting unfrozen. We have communicated to both customers and regulators on our view of a path forward and have made some significant decisions. Those decisions include moving aggressively in identification of all known product issues, communicating them clearly with an action plan for remediation. It has also included making decisions to stop supporting older product generations, and that information, too, has been relayed to customers. I don't want to get into more specifics than that, other than decisions and remedies are in flight as we speak. What we know is if the right people have been through the exact same experiences, then our team is now fully embedded into the operation. We've tried to get unfrozen by breaking the items into smaller manageable pieces with clear decision-making. The other part of value in M&A deals are synergies. From a complementary product and logic perspective, customers get it and would like to see all parts of the portfolio executing well towards them. Specifically, we continue to feel confident in our year one 25 million synergy target and see many opportunities in the medium term. but we cannot focus on them until we stabilize and get the basic operations running well and prepare for our IT systems cutover. We've moved very quickly, and the full U.S. commercial integration happened within 90 days of closing, with all relevant cross-trainings happening as we speak. The actions for Europe and LATAM have been aligned around, and implementation is starting now, and then we face some common-sense decisions in Asian markets. We certainly expect to have all commercial-facing integration globally finished within this calendar year. So where does that leave us for the full year? We started the year saying there's a wide range of financial outcomes in the near term as we sort through the operational cleanup and achieve synergies, and that's still true today. With Q1 being a little less than we wanted, it does create a harder, steeper ramp for the balance of the year. At the same time, we do see many addressable issues and, frankly, just open orders that if we can produce and ship, that can make a substantial positive impact. We would like, as usual, and because things are so fluid right now, to update our view of the year as we usually do on our Q2 call. We're trying to balance being logical, serving customers well, while spending somewhat responsibly. And we're also very focused on sequential improvements for the year as each month goes by to make sure we have the right exit run rate heading into next year. But what we don't know yet is when we can call an all clear on supply chain or a complete quality and regulatory compliance or all the complete quality and regulatory compliance-related improvements to be as predictable as we try to be in our legacy ICU business. Just a few words on the medium and long-term here as we're head down on the immediate term right now. For legacy ICU, our returns have been driven by our most differentiated businesses, which will end 2022 larger than ever with appropriate profitability levels. The core premise of the Smith's transaction is to enhance the product offering for these exact categories that drive our returns as well as add logical adjacencies predicated on the same characteristics of sticky categories, low capital intensity, single-use disposables with opportunities to innovate, and a logical industry structure. Even though we're consumed right now with basic operations, we still believe this to be the strategic case, and the big opportunity over the long term is using the combined portfolio to improve in existing markets and also move as the value shifts into new spaces. The construction of the Smith's portfolio was logical and frankly why it survived over the The priorities we outlined to start the year are also the same. In the very immediate term, our goal is to progress on the issues described and stabilize the customer base and act with transparency while realizing the low-hanging synergies which all exist. In the medium term, it's about focusing and delivering a few key areas of incremental innovation, connecting all the pump platforms with IT and finishing some of our own projects, and a few iterations in the combined consumables portfolio, and then using the combined portfolio to increase our value and relevance to customers and focusing on the higher hanging synergies after we integrate core IT systems and processes. And in the long term, it justifies all the effort expended here is to be able to broaden the available markets that we can participate in inside and outside of the hospital environment. From a value creation perspective, in short to medium term with Smith Medical, just like Hospira, we see two basic bookend scenarios for this acquisition. In the best case, we'll have better execution to improve Smith's top line performance, drive operational improvements and focus on cash conversions and returns. In the worst case, we continue to fight headwinds on Smith Medical's top line, but we still can drive operational improvements and generate solid cash returns over time. Either one of those cases is value creating relative to the transaction math, and the bare minimum standard is to get the core revenues of Smith Medical to a profit level that aligns with our differentiated businesses. If we do that, along with understanding what incremental CapEx is really needed post-integration, Returns could be generated quickly. But over the long term, the same compounding criteria that we always talk about applies. Are the businesses bigger or smaller and more profitable? And our team understands that point. Yes, we're doing all of this in an unusual time and an unusual framework when we have a normal operating business and legacy ICU in a PE-like situation on the side, but we'll get it sorted out as quickly as possible. While the pandemic introduced substantial volatility, strategically, we do think the weaknesses it's exposed in the healthcare supply chain add to the argument for all participants to be healthy and stable, which has been our commentary since we became a full-line supplier. Smith's Medical also produces essential items that require significant clinical training, capital expenditures, and in general, items that customers do not want to switch unless they have to. The market needs Smith's Medical to be a reliable supplier, and the combination positions us better. Our company has emerged stronger from all the events of the last few years. Thank you to our shareholders who were patient with the time it took to deploy capital and use our liquidity. Thanks in advance to our teams and the new colleagues from Smith's as we're running up that hill again to drive value out of the combination. And thank you to all the customers, suppliers, and frontline healthcare workers as we improve each day. Our company appreciates the role each of us has had to play. With that, I'll turn it over to Brian.
John
Thanks, Vivek, and good afternoon, everyone. To begin, I'll first walk down the P&L and discuss our results for the first quarter and then move on to the cash flow and balance sheet. So starting with the revenue line, our first quarter 2022 gap revenue was $543 million compared to $318 million last year, which is up 71% on a reported basis, reflecting the impact of the Smith Medical acquisition along with growth in the legacy ICU business. For your reference, The 2021 and 2022 adjusted revenue figures, which exclude contract manufacturing sales to Pfizer, can be found on slide number three of the presentation. For the legacy ICU business, our adjusted revenue for the first quarter was $317 million compared to $304 million last year, which is up 4% on a reported basis and 6% constant currency. Infusion consumables was up 11% reported, or 13% constant currency. Infusion Systems was up 3% reported, or 5% constant currency. And IV Solutions was down 4% on both a reported and constant currency basis. Overall, the results for the legacy ICU businesses were in line with our expectations. For the quarter, the Smiths Medical businesses contributed $215 million in revenue. As a reminder, The Smith Medical acquisition closed on January 6th, and our first quarter results include the impact from Smith Medical's operations beginning on January 7th and continuing through March 26th. This is the fiscal period end under Smith Medical's historical financial reporting calendar on which the financial systems are still aligned. Therefore, while the ICU results for the first quarter reflect 63 business days of activity, Smith Medical represents 56 business days, which is seven days fewer given the timing of both the transaction closing and their quarter-end cutoff. As you can see from slide number four of the presentation, for the first quarter, our adjusted gross margin for the combined business was 37%. This was a bit lower than we had expected due to the follow-on impacts from the Smith Medical challenges that Vivek mentioned. specifically the lost absorption from lower production volumes, along with additional freight costs from expedited shipping to customers, both of which are related to supply chain constraints, plus some impact from labor inflation catch-up as we increase wages in the Smith Medical factories. Over the course of the year, we expect the gross margin for the legacy Smith Medical business to improve as we make progress on the supply chain challenges. For the legacy ICU business, adjusted gross margin was consistent with prior year and it was in line with our expectations with the exception of loss absorption from lower manufacturing production volumes in our Austin plant. Otherwise, we were able to offset year-over-year inflation pressures with the benefits of favorable product mix coming from faster growth in our consumables business, as well as higher LVP dedicated set volumes within infusion systems. SG&A expense was $153 million in Q1, and we estimate that the legacy ICU spending was about the same as the fourth quarter. R&D expense was $24 million for the quarter, and that was roughly evenly split between the ICU and Smith's medical businesses. Restructuring, integration, and strategic transaction expenses were $34 million in the first quarter. Of this amount, $32 million was related specifically to the Smith's medical acquisition, including approximately $20 million of fees and taxes associated with closing the transactions. the remaining $12 million related to integration activities. Going forward, we expect total restructuring, integration, and strategic transaction expenses to decline relative to Q1 as the transaction closing expenses will not recur. However, we will continue to invest in integrating the businesses. Adjusted diluted earnings per share for the first quarter was $1.82 compared to $1.62 last year. Both the current and prior year results were favorably impacted by lower tax rates due mostly to excess benefits from equity compensation. The favorable tax rates contributed approximately 20 cents in the current year and 10 cents in the prior year. Basic and diluted shares outstanding for the quarter were 23.6 million, reflecting the 2.5 million shares issued as part of the Smith's Medical Acquisition Considerations. And finally, adjusted EBITDA for Q1 increased 47% to $85 million compared to $58 million last year. Now, moving on to cash flow in the balance sheet. For the quarter, free cash flow was negative $24 million as there were a number of discrete cash outflows. During last quarter's call, we said we would invest heavily this year into three key areas. The first was the integration of the Smith Medical business And as previously mentioned, we did spend 32 million on transaction expenses and integration activities. The second was quality improvement initiatives for Smith Medical. And during the quarter, we spent 13 million on quality system and product-related remediation. And the third was higher levels of inventory to bolster safety stock and allow for onboarding of new customers. Here, we invested 36 million in additional inventory across both the legacy ICU and Smith Medical businesses in order to better serve customers. These three areas, when combined with our annual incentive compensation payouts, total over $100 million of discrete cash items for the quarter. Going forward, we don't expect this same level of spending in future quarters. However, as we previously mentioned, in aggregate, we don't expect meaningful free cash flow generation for the full year as we address the Smith Medical supply chain and quality system matters and invest in integrating the businesses. In the first quarter, we spent 24 million on CapEx for general maintenance and capacity expansion at our facilities, as well as placement of revenue generating infusion pumps with customers outside of the US. And just to wrap up on the balance sheet, We finished the quarter with $1.7 billion of debt and $347 million of cash and investments. In summary, we are pleased with how we started off the year for the legacy ICU businesses, even in the face of a challenging environment for supply chain stability and inflation. While the Smith Medical acquisition has a wide range of potential outcomes in the short term, we remain convinced of the longer-term opportunity, financial returns, and our ability to tackle the issues. Strategically, we needed to broaden our available markets and we're working to get that portion of the business on the same trajectory as Legacy ICU. We look forward to providing updates on our progress during next quarter's earnings call along with any updates to our full year forecast consistent with our historical cadence. And with that, I'd like to turn the call over for any questions.
Operator
Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first question comes from the line of Jason Bedford with Raymond James. Please proceed with your question.
Jason Bedford
Hi. Good afternoon. A lot to unpack here. So I guess maybe just to start on the first quarter EBITDA came in a little lower than expected, or at least we expected, and it sounds like you expected. Revenue was largely in line. I realize that it's tough to tease out, but was ICU profitability from a margin standpoint similar to 2021 levels?
Brian
Jason, yes, it was the legacy ICU businesses were generally in line with last year.
Jason Bedford
Okay. You mentioned the 280 to 300 million in quarterly revenue. What needs to happen to get back to that level? I know you mentioned a few things, but if you had to kind of winnow it down to the punchline, what needs to happen here for you to get back to that 280 to 300?
Brian Bunnell
Hey, Jason, how are you? We tried to give the actual bridge. I mean, we're the same people that said things don't move that fast in this industry, right? For years we've been saying that, and they don't move that fast. So why such a spread? One piece was just math. That should happen. There's been some IT bumps and stuff along the way, too. As long as the IT platforms remain stable, that should automatically happen. Then the second and third issues are related to the two big buckets. One is just clearing the back orders and producing enough stuff and getting into the channel. We didn't make as much progress as we wanted on that in Q1. We thought we would get an extra five or six days out the door. That's the difference. And that's $20 to $30 million. And we're trying as hard as we can to get all of that out. It's just been tough with a very inconsistent supply chain. So that's kind of item one that has to happen to get back to normal. And then some portion of it, the small portion, is associated with the quality-related interruptions, and we're working those issues. It's really the same three buckets I went through On the script, the punchline is run a good operation, right? The first thing happens on autopilot, the second one is run a good operation, whether that relates to quality or production and shipping.
Jason Bedford
Is the expectation that the backlog will come down in 2Q versus 1Q?
Brian Bunnell
I think that is our expectation, but I don't want to quote an amount because It's only started to improve, frankly, over the last 7 to 10 days even. We didn't make progress in January, February, or March. We were really buried. And it's hard if you're going 24-7 anyway or max shift anyway to increase beyond that. We're certainly trying, but we're spending orders of magnitude more on solving that than And so we're trying to balance the right value in there all the time too.
Jason Bedford
Okay. And not to get too granular, Vivek, but what's allowed it to improve over the last seven to 10 days?
Brian Bunnell
Just getting stuff out the door. And so, I mean, this is basic warehouse operations, receiving, clearing out space by shipping, then getting stuff received into warehouse and moving it out. Literally focus on the most acute customer back orders and the things that really impact patient care on a day-to-day basis. Getting that prioritization and then first adjusting the IT systems and the workflows that you could actually run your business that way. That wasn't necessarily happening.
Jason Bedford
Okay. So it sounds like, and again, this is my interpretation, so please correct me if I'm wrong. Assuming there's not a big bolus in demand here, the backlog based on the last seven to 10 days of improvement should start to work its way down into Q and beyond.
Brian Bunnell
I mean, right now, Jason, I would say if we just had a normal quarter of sales, put the backlog on the side, right? Almost as if we had a normal quarter of sales, we would be happier than we are today. Right. Obviously that what we want to make sure that we want to fill that backlog because you don't want it to evaporate. Right. And there's a lot of old orders in there that we've kind of scrubbed through and tried to remove things. We didn't think were real. I don't want you leaving that comment saying, oh, we'll get a normal quarter of sales and all the black hog will get cleared on top of that. Right now, we wouldn't say that. We would just be happy to get a normal quarter today. Okay.
Jason Bedford
Okay. That's helpful. And then just maybe lastly for me. Yeah. Go ahead. No, no. You're on the right topic there. Go ahead. Gross margin. I think you explained it away and it sounds like it's all Smith, but Previously, I think you talked about a 40% bogey out there for gross margin. Is that still on the table, or does that come down a bit?
Brian Bunnell
I mean, I think over the long term, certainly. I mean, I think that's the bare minimum, frankly, over the long term. I think you'd be shocked if we told you how many points were impacted by just trying to catch up and by running an unabsorbed factory. It's dramatic. It's dramatic, and we'd rather take that pain right now trying to serve customers and catch up.
Jason Bedford
Okay. That's helpful. Thanks, guys.
Brian Bunnell
Brian, would you add? I don't want to spell it, Brian.
Brian
Thanks, Jason. Thank you, Jason.
Operator
Thank you. Our next question comes from the line of Larry Solo with CJS Securities. Please proceed with your question.
Larry Solo
Great. Thanks. Good afternoon, guys. Good afternoon. But can you, on the, just to follow up on the revenue growth sort of Smith, you know, you mentioned there's bookends where, you know, one scenario, your revenue is sort of flat, but you value add other ways. And then you have a, you know, the other, the opposite side where you, you know, your revenue grows. Can you sort of, you know, at Smith's particular, can you speak maybe a little bit historically why it's been flat, you know, what has been growing and what maybe hasn't been growing at all? What's going to change? What could maybe, you know, what would be the growth drivers in the future that could maybe turn this into more of a growth revenue grower than an Edison?
Brian Bunnell
Yeah, I mean, I'll try to give a short answer there, Larry, because it's in aggregate, right?
Larry Solo
If you just looked at it. Yeah, yeah, yeah.
Brian Bunnell
If you looked at a 10-year plot of revenues, it would be almost flat, right? From 2011 to 2021, something like that, plus or minus $25 million probably, currency adjustment. Underneath that, there were pockets that really went up, like ambulatory infusion went up, right, because of all the drivers underneath that market and the inherent market structure. Some of the categories in vital care went up. and will probably continue to go up if remediated properly because of the unique nature of the markets and the market structure. And then there were categories like their version of consumables that went down where we actually believe if we can focus on that, both from a production and commercial standpoint, we can improve there. And so some things should grow because the market structure should enable it with the underlying dynamics and just with focus, and some we actually need to turn around a bit more. But the belief was, even if it could hold flat at the revenues, was we have synergies and duplication in lots of places, and that's value. A little bit like the Hospira story, right? Consumables, it took a year, year and a half to get Hospira consumables moving, but it became very powerful once we did that. I think some of those categories, you know, we continue to have that belief in. So it's a complicated answer because there's a lot of different lines of business, but Right now, we would just take a normal quarter that – a normal quarter that equaled their flat historically where we were adding value below the revenue line. We'd start with that.
Larry Solo
And is the consumables piece – is that in the catheters? Is that in the vascular access mostly, or is that sort of spread out?
Brian Bunnell
It's not just catheters. It's everything in that vascular access bucket. Right. Which is – which was the largest segment. Right.
Larry Solo
Yeah, yeah, absolutely. And then just on pricing, I know you've discussed it and you've had significant inflation impacts. And I know you've been raising prices a little bit, but it does seem like you're sort of limited on your ability to raise price. So, you know, people have asked me this question, you know, is it just because the industry is something, there's only a few providers. Why can't you raise price a little more? Like I see, you know, I mean, I know, you know, sort of an open-ended maybe you can't answer that question but it seems like a lot of in a lot of industries people are raising prices everywhere so can you eventually raise prices just as contracts and stuff you can't raise price on there's no kickers in them um is that kind of what restricts you or you know can you maybe speak to that oh i'll sort of i mean i i've obviously been paying very close attention to the public commentary on this topic for months um
Brian Bunnell
I think we would say for many years, we sold under long-term fixed price GPO contracts, which people enjoyed because we had zero price erosion and the opportunity to take little increments here and there. I think we've tried to address that framework constructively. Obviously, our customers are suffering and operate on thin margins. And each unique product category has its own competitive dynamics. I think we have tried to illustrate our value. And historically, Legacy ICU, certainly in many categories, was a low-priced player. And we've tried to address that wherever I had the opportunity to address that. It's absolutely the right topic, difficult to implement everywhere. And you have to do it in partnership with customers who have their own problems every day right now, as we're all reading about. I mean, the journal had a great article.
Larry Solo
And I guess it's a long term. It takes a long time. I mean, a low cost product, you have to change slowly.
Brian Bunnell
But our competitive position actually works in that where, you know, where we were participating in the market. That's how ICU carved out its, original role way back when, aside from the clinical. So I think we're trying to do everything we can possibly do there.
Larry Solo
If I could just sneak one more in real fast. So the guidance basically sounds like the legacy is basically in line. I mean, inflation may be hurting you more, but you have this big range. So maybe you're at the lower middle part of the range or something. I mean, that's me putting that words into your mouth. And then Smith's, I guess, is It sounds like it might be hard to get to your number, but maybe your goal is at least you can exit the year at the target you started with, but maybe you don't get quite all that EBITDA in this year. Is that at least one scenario?
Brian Bunnell
Yeah, I mean, I think that is one scenario, but there's so many moving parts going back to this back order. Like you can't – it's May. You can't say I'm playing for the back half right now, right? We just teed off. Like that doesn't – that doesn't make sense. We're improving things each day. And there's so many pieces. And by the way, in the regular business, even if you go back to ICU, every week there's been challenges for the last 12 months on raw material availability components, this and that. And we've done a pretty good job of bobbing and weaving and surviving all of those, right? Because it was our core business. But there's just more stuff. So it's hard right now with the the randoms that come in each week to say, so we'd rather take our time, we're seeing what's happening each week, do it the right way, and prove to ourselves that even with another 90 days, because it was a short time between the last call and today, even with another 90 days, we can add real value and it'll take stock of where we are, right? You can't mail it in.
Larry Solo
You're no less confident, right, no, I get it, but you're no less confident in maybe the exit year or what you're doing in 2023 than you were a few months ago, unless, you know, barring something unexpected.
Brian Bunnell
I think the issues are all solvable. Nothing's structurally changed in the market. There's no... Okay, great.
Larry Solo
No, I appreciate all that, Collin. Thanks so much. Thanks, Larry.
Operator
Thank you. Our next question comes from the line of Matthew Michon with KeyBank Capital Markets. Please proceed with your question.
Matthew Michon
Great. Thank you for taking the questions, and good afternoon, guys. I guess my question is on the customers. Do the customers have enough inventory to work through this backorder issue, and are they sticky with SNF?
Brian Bunnell
We think about that every minute of the day, and that is absolutely the right question. In certain areas, it's very lean out there, which is why we're spending like crazy to solve the issues, Matt. and uh going at it so hard so that answer isn't universal in all categories so our fear is if it if it goes on too long you lose you could lose the business and it goes out of your permanent book of business we don't want that right and that's why we're trying to be transparent to the customer and it's again it's akin to our last big situation it was pretty ugly when we walked into it right people have had the experience with us about fixing these things And we're trying to make it very clear what's going on with real timelines and real commitments and show them we'll, at some level, like we did with Hespera, we put our money where our mouth is on a number of supply items. And, you know, we're crossing the bridge on some of those topics now. But it starts with really being honest and transparent to everyone about what's going on with a real calendar and wanting to fix it. So the answer, the direct answer is in some items, the inventory is very thin out there. Those are the ones we talk about improving production on the fastest, the critical items, and they often are the highest margin items, and getting those into the channel right now is what we're trying to do. Okay.
Matthew Michon
Excellent. Thank you. Go ahead. It's great.
Brian Bunnell
It's the right question. Thanks, guys. We appreciate the support and questions, as always, and answer anything else offline if we need to.
Operator
Thank you. We have reached the end of the question and answer session. I'd like to turn the call back over to Mr. Jain for any closing remarks.
Brian Bunnell
Thanks, Michelle. Nothing else. The team is working incredibly hard. We appreciate the interest in ICU. It's a very unusual time out there, and I think we're committed to improve what we've got our hands around here every single day. So we'll talk to you in 90 days, and hopefully have constructive things to say then. Thanks very much.
Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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